TaxTMI 
TaxTMI 
GUIDANCE NOTE ON COST ACCOUNTING STANDARD ON REPAIRS AND MAINTENANCE COST (CAS-12)
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.... and Audit) Rules, 2014. As per rule 3, for the purposes of sub-section (1) of Section 148 of the Companies Act, 2013, the class of companies including foreign companies defined in clause (42) of Section 2 of the Companies Act, 2013 (18 of 2013) engaged in the production of the goods or providing services specified in the Table A and Table B to the above referred Rules have to maintain cost records in Form CRA-1 annexed to above rules having an overall turnover from all its products and services of rupees thirty five crore or more during the immediately preceding financial year. Form CRA-1 annexed to the "Companies (Cost Records and Audit) Rules, 2014 specified various items of costs which are to be included in the books of accounts. Para 5 of Form CRA-1 of the above Rules deals with Repairs and Maintenance. These are to be applied while maintaining cost records. As per proviso to Section 148 (3) of the Companies Act 2013, the auditor conducting the cost audit shall comply with the Cost Auditing Standards issued by the Institute of Cost Accountants of India with the approval of Central Government. As per Cost Auditing Standard 103 on "Overall Objective of the Independen....
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.... on. Activities such as changing lubricant are based on time, like calendar schedule or equipment run time. For example, oil in the vehicles is changed every 3,000 to 5,000 miles/ kms travelled. No consideration is given to the actual condition and performance capability of the oil. In some cases preventive maintenance is necessary as required under related regulations such as annual/bi-annual boiler inspection. Planned (Predictive /Corrective) Maintenance Predictive maintenance: Predictive maintenance differs from preventive maintenance as its basis is maintenance needs on the actual condition of the machine, rather than on some preset schedule. For example If, the operator of the car ignored the vehicle run time and had the oil analyzed at some point in time to determine its actual condition and lubrication properties, he may be able to postpone the oil change until the vehicle had travelled 10,000 miles/ Kms. Corrective maintenance Corrective maintenance is designed to preserve and restore equipment reliability by replacing worn out components before they actually fail. This activity may consist of repairing, restoration or replacement of components. Total Prod....
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....€¢ Historical cost • Actual or standard cost CHAPTER 2: Definitions Cost Object: This includes a product, service, cost centre, activity, sub-activity, project, contract, customer or distribution channel or any other unit in relation to which costs are ascertained.^[1] Direct Expenses: Expenses relating to manufacture of a product or rendering a service, which can be identified or linked with the cost object other than direct material cost and direct employee cost^[2]. Finance Costs: Costs incurred by an enterprise in connection with the borrowing of funds. Imputed Costs: Hypothetical or notional costs, not involving cash outlay, computed for any purpose.^[3] Normal capacity: Normal Capacity is the production achieved or achievable on an average over a number of periods or seasons under normal circumstances taking into account the loss of capacity resulting from planned maintenance.^[4] Production overheads: Indirect costs involved in the production process or in rendering service^[5]. Repairs and Maintenance cost: Cost of all activities which have the objective of maintaining or restoring an asset in or to a state in which it can perform ....
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.... and are charged to maintenance jobs based on recorded usage in hours or to cost centres based on estimated usage envisaged at the time of planning the capital expenditure on these items of equipment The measurement of these resources consumed is to be determined in terms of relevant cost accounting standards, viz: Material Cost (CAS-6); Employees Cost (CAS-7); Cost of Utilities (CAS-8); Depreciation and Amortisation (CAS- 16). As per CAS-6, the valuation of receipt of materials is to be based on the terms and conditions stated in the purchase /supply order, source of supply i.e. indigenous or imported etc. It is to be valued at purchase price including duties(import duty) and taxes, freight inwards, insurance, and other expenditure directly attributable to procurement (net of trade discounts, rebates, taxes and duties refundable or to be credited by the taxing authorities) that can be quantified with reasonable accuracy at the time of acquisition. The consumption of material is to be valued at issue rate adopted i.e. First in First out, last in first out, weighted average. The basis adopted has to be followed consistently. Direct and Indirect employee co....
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....rces and these are accounted for on number of jobs completed. Actual usage of materials, time and other resources are recorded in detail. Planned maintenance includes annual shutdowns, periodic overhaul etc. These carry a standard bill of materials to be used for the maintenance jobs, parts to be replaced during the planned maintenance, number and skill category of maintenance employees required, heavy maintenance equipment like cranes to be used and other resources. Actual cost of these resources is booked against the planned maintenance jobs. The above elements of cost consumed (viz material, consumable stores, spares, employee cost, equipment usage, utilities etc) are to be measured as stated in paragraph 5.1 above. Equipment usage - depreciation of the fixed assets of the repair department are measured on the basis of straight line/written down value method as per accounting policy. 5.3 Cost of repairs and maintenance activity carried out by outside contractors inside the entity shall include charges payable to the contractor and cost of materials, consumable stores, spares, manpower, equipment usage, utilities, and other costs incurred by the entity ....
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.... and 5.2. 5.5 Cost of repairs and maintenance jobs carried out by outside contractors shall include charges made by the contractor and cost of own materials, consumable stores, spares, manpower, equipment usage, utilities and other costs used in such jobs. If a repairs and maintenance job is carried out by an outside contractor, he will be paid as per agreement including the cost of his own materials, consumable stores, spares, manpower, equipment usages, etc. The cost of repairs and maintenance job will be as per contractor's invoice. Maintenance of specialized equipment is entrusted on a turnkey basis to the vendor of the equipment or other specialized maintenance outfits. This may involve costs of travel of technicians besides bill for services from the agency rendering the services. Annual Maintenance contracts (AMC) for specialized equipment take the form of only servicing or servicing with parts. The AMCs specify the number of routine servicing calls that will be made in a year. Where a single machine is covered by an AMC, costing becomes simple. But where a fleet of machines are covered by a single AMC, allocation of costs to cost centres ....
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....ed and the cost of the same is included in repairs and maintenance cost. The standard lays down that the cost of spares replaced is to be included under repairs and maintenance cost of equipment provided it enables maintaining the operating capability of the equipment. If the future economic benefits expected to arise from the existing assets are in excess of the previously assessed standard of performance, it is to be included in the cost of asset (capitalized) and will not form part of repairs and maintenance cost. For example a steel plant treats relining expenses other than Blast Furnace relining as an expense in the year in which these are incurred, and whereas Blast Furnace lining are capitalized and its cost depreciated with the cost of Blast Furnace. 5.8 High value spare, when replaced by a new spare and is reconditioned, which is expected to result in future economic benefits, the same shall be taken into stock. Such a spare shall be valued at an amount that measures its service potential in relation to a new spare which amount shall not exceed the cost of reconditioning the spare. The difference between the total of the cost of the new spare and the reconditionin....
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....epair and maintenance work for which no cash out lay is involved shall be taken into account. For example spare parts received as insurance spares and capitalized with the cost of plant/machinery shall not be assigned any imputed cost at the time of issue as they are depreciated with the cost of equipment. 5.12 Price variances related to repairs and maintenance, where standard costs are in use, shall be treated as part of repairs and maintenance cost. The portion of usage variances attributable to normal reasons shall be treated as part of repairs and maintenance cost. Usage variances attributable to abnormal reasons shall be excluded from repairs and maintenance cost. If standards have been fixed for repair and maintenance, variance analysis shall be carried out both for price variance and usage variance. The variance analysis enables management to observe the extent to which actual repairs and maintenance expenses are differing from estimates. 5.13 Subsidy / Grant / Incentive or amount of similar nature received / receivable with respect to repairs and maintenance activity, if any, shall be reduced for ascertainment of the cost of the cost object to whi....
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....cost accounting standards. Cost accounting principles applied for measurement of the cost elements of repairs and maintenance expenses should be followed consistently. These should be changed if required by law, or for compliance with cost accounting standards or for better presentation of cost statement. CHAPTER 4: Assignment of Costs 6. Assignment of costs 6.1 Repairs and maintenance costs shall be traced to a cost object to the extent economically feasible. Direct tracing of Repairs and maintenance cost is the process of identifying and assigning costs that are specifically associated with cost object economically. It involves establishing a suitable procedure to directly trace/ identify and record the same by the cost object. Cost Object is a logical sub-unit for collection of cost. Thus cost object may be any product service, contract, project, activity or any other work unit for which a separate cost measurement is desired. Invoice/repair orders are the source documents indicating details of repair and maintenance job/asset wise. Various items of Repairs and maintenance costs are first accumulated according to nature of expenditure. These a....
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....he various cost objects in proportion to the benefits received by them. Benefits received when measurable and traceable, provide guidance for assignment. The beneficiaries of the output of the cost pool shall be identified and costs allocated in proportion to the benefits received. Benefits received shall be interpreted as receiving of services by the activity represented by the cost object to which the costs are being assigned. 6.3 If the repairs and maintenance cost (including the share of the cost of reciprocal exchange of services) is shared by several cost objects, the related cost shall be measured as an aggregate and distributed among the cost objects as per principles laid down in Cost Accounting Standard - 3. Repairs and maintenance cost (including the share of the cost of reciprocal exchange of services) shall be measured as discussed under paragraph 5. Such cost of repairs and maintenance shall be aggregated and distributed among cost objects as under: • Unit of production • Direct labour cost • Direct labour hours • Machine hours • Predetermined base CHAPTER 5 Presentation 7.1 Re....
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....balance to be amortized over its useful life by class of asset. 8.1.5 Repairs and maintenance cost paid/ payable to related parties^[7]. The related parties have been defined under the Companies (Accounting Standards) Rules, 2006. Amount paid/payable to related parties for repairs and maintenance cost shall be reflected in the cost records. 8.1.6 Repairs and maintenance cost incurred in foreign exchange. Details of repairs and maintenance cost incurred in foreign exchange for spare parts or hiring of technician etc shall be reflected in the cost records 8.1.7 Any Subsidy / Grant / Incentive or any amount of similar nature received / receivable reduced from repairs and maintenance cost. Any amount of subsidy/grant/incentive or any similar nature received shall be deducted from the repairs and maintenance cost and reflected in the cost records 8.1.8 Any credits / recoveries relating to the repairs and maintenance cost. If any repairs and maintenance cost is carried out for any other unit of the entity, credits/amount recovered shall be adjusted against the repair and maintenance cost and reflected in the cost rec....
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....is standard deals with the principles and methods of determining the repairs and maintenance cost. 1.2 This standard deals with the principles and methods of classification, measurement and assignment of repairs and maintenance cost, for determination of the Cost of product or service, and the presentation and disclosure in cost statements. 2. Objective The objective of this standard is to bring uniformity and consistency in the principles and methods of determining the repairs and maintenance cost with reasonable accuracy. 3. Scope This standard should be applied to cost statements which require classification, measurement, assignment, presentation and disclosure of repairs and maintenance cost including those requiring attestation. 4. Definitions The following terms are being used in this standard with the meaning specified. 4.1 Cost Object: This includes a product, service, cost centre, activity, sub-activity, project, contract, customer or distribution channel or any other unit in relation to which costs are ascertained.^[8] 4.2 Direct Expenses: Expenses relating to manufacture of a product or rendering a service, which can be identi....
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....periodic (generally more than one year) repair work carried out to substantially restore the asset to intended working condition. 4.8 Standard Cost: A predetermined cost of resource inputs for the cost object computed with reference to set of technical specifications and efficient operating conditions. Standard costs are used as scale of reference to compare the actual costs with the standard cost with a view to determine the variances, if any, and analyse the causes of variances and take proper measure to control them. Standard costs are also used for estimation. 5. Principles of Measurement: 5.1 Repairs and maintenance cost shall be the aggregate of direct and indirect cost relating to repairs and maintenance activity. Direct cost includes the cost of materials, consumable stores, spares, manpower, equipment usage, utilities and other identifiable resources consumed in such activity. Indirect cost includes the cost of resources common to various repairs and maintenance activities such as manpower, equipment usage and other costs allocable to such activities. 5.2 Cost of in-house repairs and maintenance activity shall include cost of....
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....be treated as repairs and maintenance cost. 5.9 The cost of major overhaul shall be amortized on a rational basis. 5.10 Finance costs incurred in connection with the repairs and maintenance activities shall not form part of Repairs and maintenance costs. 5.11 Repairs and maintenance costs shall not include imputed costs. 5.12 Price variances related to repairs and maintenance, where standard costs are in use, shall be treated as part of repairs and maintenance cost. The portion of usage variances attributable to normal reasons shall be treated as part of repairs and maintenance cost. Usage variances attributable to abnormal reasons shall be excluded from repairs and maintenance cost. 5.13 Subsidy / Grant / Incentive or amount of similar nature received / receivable with respect to repairs and maintenance activity, if any, shall be reduced for ascertainment of the cost of the cost object to which such amounts are related. 5.14 Any repairs and maintenance cost resulting from some abnormal circumstances, if material and quantifiable, shall not form part of the repairs and maintenance cost. Example: Major fire, explosions, ....